Question

economics
ch3 handout #3 worksheet
name:
instructions: answer the questions on this worksheet in their entirety, understanding your work on this worksheet is also
meant to help: answer the questions on this worksheet in their entirety, understanding your work on this worksheet is also
meant to help you study for our exam. this worksheet is designed to assist you with the illustration the law of demand, the law of
supply, and the market, determining the equilibrium price and quantity for a market, understanding the impact of surpluses and
shortages on the market, and determining the impact of determinants of supply and demand on the market.

1. the table below displays information pertaining to the market for milk:

table 1 cartons per day
price (dollars per carton) quantity demanded quantity supplied
1.00 200 110
1.25 175 130
1.50 150 150
1.75 125 170
2.00 100 190
in this space, please illustrate the market for milk, with both the supply
curve and demand curve graphed on the same graph, making sure you label
each component and put the correct variables on the x - and y - axis.

price
2.00
1.75
1.50
1.25
1.00
100 120 140 160 180 quantity
qeq

a. the equilibrium price for milk is $______ and the equilibrium quantity of milk produced and sold in the market is
______ cartons.
b. if the market price of milk suddenly rises to $1.75, the milk market will suddenly be faced with a ______, or excess
____, which means the quantity __ is greater than the quantity ____. numerically, the excess
____ equals ____ cartons of milk.
c. now assume better feeds increase milk production. when this happens within the above milk market, the ______
curve will shift to the ____, which will __ the price of milk and ____ the quantity of milk produced
and sold.

Explanation:

• Part a: The equilibrium occurs where quantity demanded equals quantity supplied. Looking at the table, at a price of $1.50, the quantity demanded (150) equals the quantity supplied (150).
• Part b: When the price is $1.75, quantity supplied is 170 and quantity demanded is 125. A surplus (excess supply) occurs. The formula for surplus is \(Surplus = Quantity\ Supplied - Quantity\ Demanded\). So, \(170 - 125=45\).
• Part c: Better feeds (a determinant of supply) increase milk production. This shifts the supply curve to the right. A right - shift in the supply curve (assuming demand is constant) leads to a lower equilibrium price and a higher equilibrium quantity.

Answer:

a. The equilibrium price for milk is $1.50 and the equilibrium quantity of milk produced and sold in the market is 150 cartons.
b. If the market price of milk suddenly rises to $1.75, the milk market will suddenly be faced with a surplus, or excess supply, which means the quantity supplied is greater than the quantity demanded. Numerically, the excess supply equals 45 cartons of milk.
c. Now assume better feeds increase milk production. When this happens within the above milk market, the supply curve will shift to the right, which will decrease the price of milk and increase the quantity of milk produced and sold.